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Derivatives

Carlton Widens After Merger Falls Through

Credit-default swap spreads on U.K. television group Carlton Communications widened roughly 20 basis points Thursday after the company announced it would not merge with fellow British broadcaster Granada on Wednesday. Mid-market five-year protection on Carlton jumped to 270bps from about 250bps. "Carlton has spent an absolute fortune on [rights for] the Champions League but the merger would have helped spread the cost, plus advertising revenues keep falling," said one trader, explaining the jump in spreads. The Champions League is an annual European soccer competition.

The trader added Carlton has also recently reported a 39% drop in annual profits. Speculation about the merger had lifted Carlton shares more than 13% Tuesday, only for them to fall back by 10% Wednesday after the company issued a statement that the merger with Granada would not happen.

Trevor Pritchard, media analyst at Standard & Poor's in London, said despite the spread widening, the key issues for Carlton have not changed as a result of the merger and the company still must overcome a weak advertising market and slow growth for its digital channel. "We were not banking on a deal with Granada, it had not been part of our analysis, but it had been a thought in the back of people's minds," he said, adding, "clearly the company still has some issues ahead of it." The rating agency has Carlton at BBB minus with a negative outlook and Moody's Investors Service has it at Baa2, also on downgrade watch.

Five-Year Credit Protection On Carlton Communications

Source: JPMorgan

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